BERLIN – The town’s annual audit again highlighted the need for a reserve policy and the importance of stopping the sewer fund’s practice of borrowing from the general fund.
Representatives from PKS & Company shared the results of the FY2019 audit with elected officials at Monday’s meeting of the town council. They acknowledged that the impact of the changes the town made recently — increasing taxes and fees — should be seen in the coming year.
“You didn’t get into this issue overnight,” said Mike Kleger of PKS. “You’re not going to get out in one year either.”
Kleger and Leslie Michalik of PKS reported the town received a clean, unmodified opinion. Michalik said that general fund revenues for the year that ended June 30, 2019, were $6,599,000. General fund expenditures were $6,692,000. Property tax accounted for 51% of the town’s revenue. The largest expenditure for the town is public safety, which accounted for 37% of total expenditures. Michalik said the town ended the year with a general fund balance of about $5 million. She pointed out, however, that about $3 million of that was not spendable, as it represented amounts due from the town’s other funds — primarily the sewer fund. She said the roughly $1.7 million in unrestricted money amounted to 3.25 months’ worth of operating expenses for the town.
“It’s important that you maintain a healthy cushion or buffer to mitigate any risks such as revenue shortfalls or unanticipated expenses,” she said.
She said that as they had last year, PKS representatives recommended the town develop a formal policy regarding the level of reserve funding it wanted to maintain. She said the Government Finance Officers Association recommended two months as a minimum.
“You’re a little bit over that but that is the minimum and most governments really need to maintain a higher balance than that,” she said. “The amount of the level is something you need to determine yourselves.”
As far as the town’s enterprise funds, Michalik said the water fund, sewer fund and stormwater fund had operated at a loss. She said the largest part of the enterprise funds’ deficit related to sewer.
“We’ve seen that the past few years, where the sewer fund hasn’t generated enough cash so it’s been forced to borrow money from the general fund,” she said, adding that sewer now owed the general fund more than $3 million. “You have to look at this amount that’s due to the general fund and ask yourself two questions — does the town intend to pay that money back and more importantly does the town have the ability to pay that money back.”
She said officials might want to write off all or part of that debt but only if they thought the borrowing would no longer occur.
“You don’t want to write that amount off and over the next couple years it starts working its way back up,” Michalik said. “If it were written off the general fund balance would decrease and net position in the sewer fund would increase.”
Mayor Gee Williams said that was something officials could consider during the next budget cycle. He also said that the recently implemented tax and rate increases should have a noticeable effect on town finances by the end of January when officials received the semi annual financial report.
“That’s when we see, is the plan working as we anticipated,” he said, adding that that information would also allow the town to set a suitable reserve policy.
